Lawyers: West Roxbury man in Ponzi scheme violated judge's orders

Wednesday

May 22, 2013 at 12:01 AMMay 22, 2013 at 10:15 PM

Government lawyers argued in U.S. District Court in Boston last week that Steven Palladino, the West Roxbury resident accused of orchestrating a Ponzi scheme, is violating a judge’s order to return or account for money and assets obtained as a result of the purported scam.

Kyle J. Paine/Wicked Local correspondent

Government lawyers argued in U.S. District Court in Boston last week that Steven Palladino, the West Roxbury resident accused of orchestrating a Ponzi scheme, is violating a judge’s order to return or account for money and assets obtained as a result of the purported scam.

Palladino, who was due back in state criminal court Wednesday, May 22, is accused of spending investors’ money on extravagant shopping sprees, gambling excursions, utility bills, tuition and car payments, according to state prosecutors.

“The issue is violation of the order,” said federal court Judge Douglas P. Woodlock last Wednesday. “The issue is contempt.”

Palladino, 55, of Lyall Street, is currently free on $250,000 bail and required to wear a GPS monitoring device. In March, Suffolk County District Attorney Dan Conley indicted Palladino and his wife, Lori Palladino, on numerous criminal charges including larceny, uttering, and tampering with evidence. Steven Palladino was also charged as an open and notorious thief because of a lengthy criminal record dating back two decades.

Prosecutors say the Palladinos used their business – Viking Financial, Inc. – to bilk investors out of millions of dollars earmarked for hard money loans and instead paid interest to prior investors and pilfered or spent the rest.

Attorneys from the Securities and Exchange Commission, arguing before Woodlock in federal court, said that since the judge’s order, Palladino has spent some $30,000 at the high-end department store Hermes, an allegation they say was confirmed by Boston Police. The attorneys also accused Palladino of pocketing tens of thousands of dollars in insurance proceeds and a 401K check, among other things.

“We consider that a violation of the court order as well,” said Deena Bernstein, senior trial attorney for the SEC.

Bernstein said she has “not received any accounting whatsoever” from Palladino, and asked that Palladino be forced to follow the judge’s order to list all assets over $500 and account for large cash withdrawals he’s made recently.

“That’s the crux of the problem,” Bernstein said.

Bernstein also asked the judge to compel Palladino to represent, under oath, that “he has provided all cash into the escrow account” set up to manage any assets obtained from his business dealings through Viking.

“It is necessary for us to have a list of those assets,” Bernstein said.

But Palladino’s attorney at the hearing, Francis J. Dimento, objected, arguing Palladino had to weigh what effect such a representation under oath would have on his criminal trial.

“His 5th Amendment concerns are ascendant here,” Dimento said, referring to the constitutional right against self-incrimination.

“I understand the 5th Amendment is implicated,” Woodlock said. “I’m not sure if it’s a valid excuse for not complying with a properly constructed order. We’ll find out.”

Woodlock agreed to let Palladino hold onto $10,000 of the 401K check he cashed in order to pay for living expenses and support his family between now and the next hearing in federal court on July 15.

“What he cannot have is anything more than $10,000 in cash,” Woodlock ordered.

An attorney for some of Palladino’s alleged victims, Allison D. Burroughs, asked the judge to require Palladino to keep track of his expenditures, “so we can understand how that money is being spent.”

“My clients (believe) every dollar that he spends is a dollar of their money,” Burroughs said.

In court filings, Bernstein explained that before the indictment, some of Viking’s alleged victims froze bank accounts in the Palladinos’ and Viking’s name, totaling up to $4.2 million. But the filing says that before that, Palladino withdrew $1.3 million and cashed out $200,000 in chips from various casinos, and that that money has not yet been recovered.

“The hope is to get every penny into [the court’s] escrow account sufficient to pay every creditor,” Dimento said. Palladino’s defense in previous hearings is that none of Vikings investors have gone unpaid.